Evolving Architectures of FinTech by Mike Barlow

Author:Mike Barlow
Language: eng
Format: mobi, epub, pdf
Publisher: O'Reilly Media, Inc.
Published: 2016-09-13T04:00:00+00:00

Nibbling Around the Edges of Legacy Architectures

If you find it ironic that in Europe and America, the financial services industry trails other industries in adopting the newest forms of information technology, you are not alone. Most IT experts agree with you. “Banks adopted IT before most other industries, which means they have more legacy infrastructure than any other sector of the economy. That makes it more difficult for them to integrate newer technologies,” says Newman.

It also explains why the fintech phenomenon looks as though it is evolving more rapidly in regions of the world where there is less existing infrastructure. In Africa and parts of Asia, for example, there are far fewer traditional banks than in Europe and America. The absence of incumbent infrastructure makes it easier for newcomers to gain footholds and create novel types of business models.

M-Pesa is the best-known example of an innovative fintech service that capitalized on a region’s lack of banking infrastructure. M-Pesa provides essential money transfer, financing, and microlending services through a mobile platform developed by Vodaphone. The service was launched in 2007 in Kenya, and has expanded to Afghanistan, South Africa, India, Romania, and Albania. In addition to creating new economic opportunities, it also brought social change to millions of people who previously had no access to safe or legal forms of banking. “It’s interesting to note that M-Pesa probably would not have been allowed to exist in the West, largely because of regulatory hurdles,” says Newman.

Although the hurdles are high, they haven’t stopped a new generation of entrepreneurs from using fintech solutions to launch startups. When Matt Oppenheimer was working in Nairobi, he noticed that people often sent money to relatives via informal networks of minibus taxi drivers. “You handed your money to the driver of a matatu (minibus) and you prayed that he actually brought it to your mother in another village,” recalls Oppenheimer. His experiences in Kenya eventually led him to start Remitly, a mobile payments service that enables consumers to make person-to-person international money transfers from the United States and Canada to the Philippines, India, and Mexico.

“The cool thing about our business is that we answer the needs of a population that’s been really underserved,” says Oppenheimer. “Until recently, the whole process of transferring cash was fraught with risk, delays, and costs. Now people can send money to relatives from their mobile phones. It’s much safer and much less costly.”

In addition to potentially improving the lives of billions of people, entrepreneurs like Oppenheimer see opportunities for leveraging fintech innovation to create new markets. The global remittance industry handles $500 billion annually. Of that total, 8 percent “disappears” in the form of fees. “That’s $40 billion being taken away from families who need the money their relatives send them,” says Oppenheimer. “Not only is that money taken, it’s taken in a way that’s not transparent.”

Replacing informal or illegal money transfer systems with digital systems that are legal, transparent, safe, and convenient seems like a win-win for everyone but the loan sharks and matutus.

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